Author Topic: Can I retire in 10 years?  (Read 4600 times)

Zoot Allures

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Can I retire in 10 years?
« on: June 01, 2012, 12:25:55 AM »
Now there's a question I never thought I'd be asking in my early 40s. But this site and others on the interwebs have opened my mind. Today I did something I've been meaning to do for a while: called my company's HR department to find out how exactly the company's pension plan works and what I might expect when I retire. I was pretty floored by what a sweet deal it is, so I crunched some additional numbers and arrived at a rough 10-year plan for retirement.

I would appreciate any feedback, especially in the not unlikely event there are any faulty assumptions here or if there's anything big I forgot to consider. Sorry in advance for the long post.

I decided to sketch out a 10-year plan so I can retire with a nice 15 years of service with my company. I'll be a young 52. I will almost certainly continue to work in some capacity after that, but I'm not factoring in any post-retirement employment income in this plan. This plan assumes I will stay with my current employer but doesn't take future raises into account. It also doesn't factor in my single-family rental property, which I'll own outright in 19 years or sooner.

Current savings vehicles are as follows:

403(b) -- Current value 33k. Starting in 2013 I will max it out (current max 17k) every year for 10 years. Total projected value, assuming 7% annual growth: $318k
Roth IRA -- Will open and max it out (5k) this year and for next 10 years. Total value: $84k
Defined-contribution retirement plan -- Employer contributes 5% of annual salary. Current value $7k; 10 more years of contributions to come. Total value: $73k.

Total of these three vehicles in 2023: about $474k

I have the 403(b) and defined-contribution plan invested in Vanguard's moderate growth fund (60% stocks, 40% bonds). I'm not sure where I'll invest the Roth IRA yet--possibly a real estate investment trust? I gather that 7% annual growth is a reasonable figure to use for these kinds of projections but I could be wrong. I used a compounding calculator at moneychimp.com to get these totals.

Now the pension. These numbers are based on my current salary. According to what I heard from HR today, if I retire at 52 after 15 years of service, my monthly payment will be $2,139 if I start collecting at age 65. If I choose to start collecting at age 55, the monthly payment is slashed to $832. Better to wait the ten years! There are also lump-sum options available ($332k at age 65; $157k at age 55), but I imagine I'd want the monthly payments.

Finally, there's a certain government program to consider. If I retire at 52, my monthly social security payments based on the current estimator tool will be $1,115/month beginning at age 62. Yes, I am taking this number with a grain--no, a pillar--of salt.

What this all suggests to me is that when I turn 52 and retire, I can use a 4% or similar safe withdrawal rate to take earnings from the $474k I have amassed in my retirement accounts. (Still a little fuzzy on how exactly that works.) That plus part-time income should have me pretty well set up for a while at a lifestyle level resembling my current one. When I turn 62, social security will (theoretically) kick in, and when I turn 65, my $2,139/month pension will start paying. I realize my employer may change its payout formula in the next few decades, but clearly there will be something significant there for me.

Am I close to reality on this? I realize that stock market volatility could really eff up these plans. And among the many other variables that could change these numbers, a big one is the possibility of a future family. It's pretty easy to dream about this stuff when you're a single dude in an apartment. But overall I'm pretty confident I can reach and maybe exceed my savings goals for the next 10 years once I get some lingering debt out of the way.
« Last Edit: June 01, 2012, 12:41:48 AM by planteater »

gooki

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Re: Can I retire in 10 years?
« Reply #1 on: June 01, 2012, 03:25:59 AM »
Yes you can retire in 10 years.

Make your plan stick to it, and review your progress every year. You may well find you'll have enough invested in 8 year, or it might take 11. Either way you're making progress every year.

The biggest concern I have is the company pension. How stable is the company your work for? Are they going to be around in 20 years time, or will they pull an Enron? If you have any concern taking the lump sum at 55 isn't a bad idea, as investing it with an expected 7% annual return yourself will give you a similar total to the 65 lump sum. with the security of the money being in your accounts.

The big pitfall to avoid is lifestyle inflation. If you have spare after tax income invest it don't blow it.

grantmeaname

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Re: Can I retire in 10 years?
« Reply #2 on: June 01, 2012, 06:53:16 AM »
You could make a lot more money by waiting to collect SS until 70, if you can bear drawing down your nest egg and living only on your pension for 8 more years. Alternately, you could collect at 62, then repay the full amount you've collected at 70 and from then on receive monthly benefits as if you'd waited until 70.

KittyWrestler

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Re: Can I retire in 10 years?
« Reply #3 on: June 01, 2012, 08:35:16 AM »
yeah, you can totally do it. And if you can manage to knock out your house or no need to pay any housing bills, you would be in a very sweet spot..

bogart

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Re: Can I retire in 10 years?
« Reply #4 on: June 01, 2012, 09:00:11 AM »
I suppose the questions that occur to me are (a) to double-check that you made sure the SS calculator you used was aware that you were proposing to exit the workforce at 52; I think the default on most of those calculators is to assume that your income (and SS contributions) will remain constant until you retire; and (b) have you factored in the costs of health insurance and health care (and any other perqs you benefit from but will not have after you retire)?

Zoot Allures

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Re: Can I retire in 10 years?
« Reply #5 on: June 01, 2012, 09:26:59 AM »
Yes you can retire in 10 years.

Sweet. I'm gonna hold you to that!

Quote
The biggest concern I have is the company pension. How stable is the company your work for? Are they going to be around in 20 years time, or will they pull an Enron?

I work for a very large, mostly benevolent health care organization. I think the company has had some challenges in recent years meeting its obligations to retirees, but I'm pretty sure the company and some version of a generous pension plan are here to stay.

I suppose the questions that occur to me are (a) to double-check that you made sure the SS calculator you used was aware that you were proposing to exit the workforce at 52; I think the default on most of those calculators is to assume that your income (and SS contributions) will remain constant until you retire; and (b) have you factored in the costs of health insurance and health care (and any other perqs you benefit from but will not have after you retire)?

Yes, the SS calculator lets you plug in different scenarios. Retiring at 52 and collecting SS at 62, I get $1,115/month. If I worked all the way to 65, I'd get $1,849/month.

Re. future health insurance and care, I haven't factored that in. Good point. I think I get some kind of ongoing coverage as a retiree, but I don't know the details yet.

skyrefuge

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Re: Can I retire in 10 years?
« Reply #6 on: June 01, 2012, 09:41:02 AM »
One thing that jumps out at me is that you're going from a sum total of $33k in retirement savings at age 42, to at least $22k *per year* of retirement savings for ten years in a row.  This indicates a pretty dramatic lifestyle change, unless the new savings-ability comes from a significant increase in income.  Anyway, that really only matters if you were asking about retiring *today*, in which case I would caution that you might not yet have evidence that you can make such a shift.  But in your case, you'll have 10 years to practice, so I guess you'll have no problem.  Congrats on accomplishing the mind-shift that allows you to even be considering such a goal!

The other thing to note is that the pension numbers are likely given in today's dollars.  $2139/mo sounds pretty awesome now, but due to inflation, when you start collecting in 23 years, it's likely to be "worth" only half as much.  Most of the time we sort of ignore inflation because we assume our investment returns keep up with inflation over the long run, but in the case of defined-benefit payouts, it's something you have to remember to think about again.

« Last Edit: June 01, 2012, 09:47:13 AM by skyrefuge »

Zoot Allures

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Re: Can I retire in 10 years?
« Reply #7 on: June 01, 2012, 09:51:41 AM »
Points well taken, skyrefuge. It's absolutely true that the next 10 years I'm planning bear very little resemblance to the last 10. The reason I feel confident is that in the last few years I have both experienced a nice income jump and learned to live frugally, and in the next year or so I'll be clearing away the last of my non-mortgage debt, freeing up that much more money for savings.

Congrats on accomplishing the mind-shift that allows you to even be considering such a goal!

Hellz yeah! Thanks.

And thanks for the reminder about inflation w/r/t the pension plan.